Common Stock Used to Reimburse EPA for CERCLA Response Costs
A recent CERCLA settlement provides an unusual method for reimbursing response costs incurred by EPA at a Superfund site. Under a proposed Consent Decree concerning the Yavapai Penta Superfund Site in Prescott, Arizona, WestRock CP, LLC – a subsidiary of Westrock Company and the successor to the now bankrupt Smurfit-Stone Container Corporation – will pay approximately half of the response costs by transferring common stock of WestRock Company and a related entity to the federal government.
The Yavapai site is a former wood treating plant where EPA discovered arsenic and pentachlorophenol contamination in 2012. After spending $6.2 million to remove 4,209 tons of contaminated soil, EPA sought reimbursement from WestRock CP, LLC as the successor-in-interest to Southwest Forest Industries Inc., which operated the wood treating plant from 1961-1985.
In a Consent Decree lodged in the United States District Court for the District of Arizona, WestRock CP, LLC and EPA agreed the claim for response costs would be satisfied by payment of (i) $1,602,877.46 in cash, (ii) 56,064 shares of WestRock Company stock, and (iii) 9,344 shares of Ingevity Corporation stock (a specialty chemical business spun off from Westrock Company). The current value of the shares is approximately $3 million. Once the Consent Order is entered and the stock is transferred, EPA will sell the stock and deposit the proceeds in the EPA Hazardous Substance Superfund.
The sale of stock and other assets as a means to raise funds to pay CERCLA settlements or administrative penalties is not uncommon and is even a suggested method in EPA’s “Ability to Pay” guidance. However, a transfer of stock directly to EPA is unusual. That said, there are reasons why it occurred here, and those reasons relate to the fact that WestRock CP, LLC had filed a Chapter 11 petition in bankruptcy and was being administered by a bankruptcy trustee pursuant to an approved Plan of Reorganization. Shares of WestRock Company and Ingevity Corporation were used to make payment because these shares were an asset of the bankruptcy estate. Thus, this wasn’t a case where the responsible party used its own shares to make payment. Instead, the bankruptcy trustee used shares belonging to the bankruptcy estate to make payment.
The settlement raises questions regarding the role of government in private business and potential market consequences of the government owning shares of a corporation, even if only for a limited time and purpose. However, the circumstances here were unusual, so it seems unlikely this scenario is one that will become commonplace in future settlements.
Interested parties may view the Complaint and Consent Decree by clicking on the link below.
Related People
